If you’re in the market for a used car, one of the most important factors to consider is how you plan to pay for it. Many buyers need to finance a used car purchase. Your credit score plays a major role in determining your used car financing options and terms. Read on to learn more about how your credit score can impact your ability to get approved for used auto financing and determine the interest rate and other terms you’ll pay.
How Your Credit Score Impacts Approval Odds
When you apply for used car financing, the lender will check your credit report and score to evaluate your creditworthiness. In general, the higher your credit score, the more likely you are to be approved. Here’s an overview of typical used car loan approval odds based on credit score ranges:
- Credit scores below 580: High likelihood of denial
- Credit scores from 580-669: Possible approval but higher rates/down payment
- Credit scores from 670-739: Likely approval at average rates
- Credit scores 740+: Very high approval odds and best rates
As this illustrates, buyers with poor credit (under 600) often struggle to get approved for used car financing from traditional lenders. Improving your credit score before applying can significantly boost your chances of getting the financing you need.
How Your Credit History Impacts Your Interest Rate
In addition to impacting your approval odds, your credit score is a primary factor lenders use to determine your used car loan’s interest rate. The higher your credit score, the lower the rate you’ll qualify for, which saves significantly on interest charges over the life of your loan.
Here are some examples of used auto loan rates you can expect to see based on credit scores:
- Credit scores below 580: 10%+
- Credit scores from 580-669: 8-10%
- Credit scores from 670-739: 5-8%
- Credit scores 740+: 3-5%
As you can see, buyers with poor credit pay interest rates that are sometimes double or triple what those with excellent credit pay. Focusing on improving your credit ahead of your used car search can put you in a better rate range and save you money each month.
How Down Payment Requirements Vary By Credit Score
Along with affecting loan approval and interest rates, your credit score often determines the down payment you’ll need to qualify for used auto financing. Again, the higher your credit score, the lower down payment you’ll need.
Here are some typical used car down payment requirements based on credit score:
- Credit scores below 580: 20-50% down
- Credit scores from 580-669: 15-25% down
- Credit scores from 670-739: 10-15% down
- Credit scores 740+: Little to no down payment required
Having to put 10-50% down can be a major barrier to buying if you don’t have significant cash savings. Improving your credit score before shopping for cars for sale in Swansea or elsewhere can help minimise the down payment needed.
Your credit score has a significant impact on your ability to qualify for used auto financing and the specific terms you’ll receive. Taking time to monitor and improve your credit score before shopping for a used car can increase approval odds, lower your interest rate, and reduce the down payment required.
